The Santa Barbara developer pushing to build one of the biggest retail projects on the Central Coast faces a lawsuit from its lender alleging that it has defaulted on $6.2 million in debt.

The Rottman Group submitted a joint application with Walmart in 2006 to build a retail complex on the north side of Atascadero at El Camino Real and Del Rio Road. The plan calls for Walmart to build a 130,000-square-foot store to the south of Del Rio Road and for the Rottman Group to build 130,000 square feet of retail space called The Annex to the north of the road.

On Oct. 18, Montecito Bank & Trust filed a lawsuit in Santa Barbara Superior Court alleging that an arm of the Rottman Group is in default on $6.2 million in debt to the bank. The lawsuit alleges that the Rottman Group owes Montecito Bank & Trust $1.9  million for a line of credit, $3.8 million for a loan to a related business called Atascadero LLC and about $250,000 for a loan made to a workforce housing project in Atascadero called Halcon. The group also owes interest and fees on the sums, the lawsuit alleges.

The Annex and Halcon are now listed among the projects of Compass Real Estate Group, which is headed by Steve Rottman.

Rottman told the Business Times that lawsuit is not expected to stall his company’s efforts on those projects. “We’re going to continue working those as best we can,” he said. “We’re going to keep trying to entitle them and move them forward.”

The Walmart and Annex project drew heavy public scrutiny during a preliminary environmental review, which resulted in scaled-down plans for a smaller Walmart store. The project was headed for a final environmental review, but a dispute has arisen between the Rottman Group and Walmart on how to split the costs of a $3 million to $4.5 million freeway interchange at Del Rio Road that’s needed to accommodate the project.

Final public hearings for the projects can’t happen until the dispute is resolved, said Warren Frace, Atascadero’s community development director.
Walmart has said it is willing to pay about $1.7 million, but it’s unclear whether Rottman Group would pay the remainder on its own, or whether taxpayers would be asked to contribute toward any shortfall.

“We are committed to paying our fair share,” said Amelia McLear, a Walmart spokeswoman.

Rottman declined to elaborate on how much his group would pay. “There are several discussions now going on about who’s going to pay for the additional infrastructure required,” he said.
Frace, with the city, said he expects a decision on the project by year’s end. He said Rottman has not said whether it has tenants lined up for The Annex.

“They originally got this whole project rolling, and they were the ones who brought Walmart in. Over the last year or so, they have really taken a back seat due to the economy,” Frace said. “It seems more likely that Walmart will be the first phase, and [the Rottman Group] will just follow along.”

The Montecito Bank & Trust lawsuit alleges that the Rottman Group misled the bank about the developer’s liquidity by using some assets to secure the Montecito Bank & Trust debt that were also being used to secure a $15.3 million loan from City National Bank to the Rottman Group for a project called Oak Canyon Ranch.

Oak Canyon Ranch is a golf resort in Calaveras County. Montecito Bank & Trust’s lawsuit alleges that Rottman Group defaulted on the $15.3 million loan for it and that City National Bank is foreclosing on the property used to secure that debt, diminishing the developer’s creditworthiness.

A City National Bank spokesman did not return requests for comment about the allegations.